Consumer prices in Ukraine increased by 0.2% month on month this June, the same as in June last year. As a result, annual inflation remained at 9.5% year on year. However, core inflation accelerated to 7.3% y/y from 6.9% in May.

Utilities inflation accelerated to 36.4% y/y from 35.3% in May. The growth in prices for hotel services and restaurants also increased significantly, picking up to 6.0% from 4.7% in May. However, an ease in the rise of global food prices dragged food inflation in Ukraine down to 9.4% from 9.9% in May, which neutralised the accelerated growth in other categories.

Year-to-date inflation reached 6.4%. Temporary factors, such as the rise in global commodity prices, continue to exert upward pressure on inflation, but we expect these factors to fade as the year goes on and see inflation slowing to 8% by the year end, which would still be above the upper limit of the National Bank of Ukraine's target range (4-6%). We therefore think the NBU will hike the key rate by another 50 bps or more this year.

The market was surprised by the National Bank of Ukraine (NBU) last month when the central bank decided to leave interest rates on hold after hiking twice in the two previous months: March (50bp), April (100bp) and leaving them flat in June. Given the surge in inflation in May the market was expecting the NBU to hike by up to 100bp, but Governor of the National Bank of Ukraine (NBU) Kyrylo Shevchenko told bne IntelliNews in an exclusive interview that he thought inflation pressures were already subsiding and he appears to have been vindicated.